Should interest-only homebuyers be made to switch?

The banks know the truth. The chickens are coming home to roost. The house price crash is on its way. These borrowers cannot pay the principle - they need capital growth to survive and capital growth is not going to be a feature of the real estate market for the next decade or so.

"Of course, the lenders shouldn't have extended interest-only loans to these young borrowers in the first place."

And which financial writer warned their readers about not having repayment arrangements in place. The advise was always get the maximum loan you can afford and buy that home quickly before it is too late.

I agree with Chris. The banks are attempting to get some money from interest only borrowers to offset the potential scale of the losses if the borrowers default and the bank is forced to foreclose.

I think repayment Mortgages are best for home owners but for investmet in not so keen but if thats the way it goes im happy to buy on repayment

It makes little differance to Buy to Let

Are banks doing this for the benefit of their customers, or for themselves?

A bit late in the day to want to make such changes for those already into contractual agreements.

Nothing to do with the fact the FSA are crawling all over lenders interest only deals and demanding proof of affordability then....

The banks quite rightly are trying to avoid a situation where they become the big bad wolf repossessing houses from pensioners who can no longer afford to pay even interest only as they cease employment.

Having criticized the banks for bad or shoddy practice it seems strange that the same people are now having a go when the banks are trying to kick a little reality back in to the market place

Eventually inflation will eat away at their debt so if worst comes to worst the BS can reposses. However, in the short term drops in house prices could outway the errosion of the debt due to inflation, so unless thay have a low LTV it would be a good idea for the banks to get some reypament to stop another banking disaster.

I am a little surprised by Lloyds stance of restricting interest only loans to the lower end of the market. These people are typically much more financially savvy, and usually have other income stream to help repay the loan, such as dividends or bonuses.

Also surprised by Dyslexic Landlords comments that it makes no difference on buy-to-let. The interest is tax deductable, and therefore it is beneficial to keep the loan at a maximum level for as long as possible. I believe it makes a big difference in reduce the tax burden for a landlord.

Those borrowers who took out interest only mortgages went in with their eyes open. It was their own fear, greed or limited knowledge that put them in a position where they couldn’t afford a mortgage if its converted to repayment. Remember the (vast majority of) borrowers are meant to have a savings vehicle in place so they should be able to afford a repayment mortgage.

I'm tired of people pleading to bail out the reckless, greedy or ill informed. Where are my bail out payments for holding BP shares?

The banks are doing what they need to do. An alternative is to let them go bust or have them take more tax payers money. I know which one I prefer.

I think this move could also be aimed at all those languishing on benefits who are stuck in limbo just paying the interest on their loans. I know one middle-aged woman who has been in this situation for several years now whilst working as a volunteer for the local CAB and unpaid trouble-shooter for the LA (her penance for being a vocal apologist for Thatcher in the 80s, I'm given to understand). The government are likely to offset an avalanche once public sector cuts materialise, surely? Otherwise, there will be hundreds of thousands of redundant civil servants having the interest paid on their mortgages for years to come. One could argue that this is just a cynical move to add movement to the housing market to stimulate prices in the short-term? But then, what do I know, huh?

With the official bank rate at 0.5%, many interest only mortgages have become far too cheap......... with the rest of us effectively subsidising them through our repayment mortgages. In theory, a Building Society or Bank can call in a mortgage at any time and could offer a repayment mortgage in exchange. If there is a housing price fall in the offing (made more likely by accelerated public spending cuts) many will go into negative equity and lose their houses.

I wish I had a low cost interest only mortgage, but the reality would be that the bank and its customers would be subsidising me.

What area of the country is "Dislexic" Landlord living/letting in? In the South West rents would cover barely two thirds of a repayment mortgage, let alone insurances, maintenance etc. Mass exit from B-T-L would be the inevitable result of forcing landlords onto repayment mortgages, with the market flooded with properties for sale. By the end of our mortgage terms we expect to be able to sell the properties for at least enough to cover the loans. As only the interest on mortgages is tax free, this is the only strategy which makes B-T-L viable.

In response to Chucks comment, 'us interest only borrowers' had two choices, especially with house prices in London so high - pay someone else’s mortgage in the way of rental accommodation or get an interest only mortgage and attempt to save to repay the outstanding loan 25 years later.